In today’s digitally connected world consumers have more choices than ever before. That means you are always at risk of losing your customers to your competitors. But, customer loyalty is the program that can help you retain your customers and even grow your customer base.
Today’s customers have access to a lot of information about your business and brand. Google, Yelp, and other reviews are not only what matters in making a customer choose your brand over the others. But, there is a lot to it that actually matters.
Research shows that customers are more willing to stick with the brands that create good customer experiences. We will also discuss what is customer loyalty in today’s sense, why is it important, and how you can measure, and increase your customer loyalty through good customer loyalty programs.
What is Customer Loyalty?
By definition, Customer loyalty is a measurement of the likelihood that customers will continue doing business with your company. Customer loyalty is the result of the overall satisfaction of the customers with not only your products and services but also at every touchpoint in the customer journey.
That means customer loyalty emanates from the customer’s experience with your company or brand. If a customer has good experience with your company, they will do repeat purchases with your company. If their experience is not good with your brand, they will probably not purchase from your company again.
Customer loyalty helps you build a long-lasting relationship with your customers. Customer loyalty helps increase customer lifetime value, acquire new customers, and increase sales and revenue. It is to note that the loyal customers recommend your company to their friends and family, stay longer with your brand, and spend more money with your business.
But, you must be thinking about how to measure customer loyalty and get benefit out of that or even improve it. Let’s them all one by one.
How to Measure Customer Loyalty?
There are four different and popular ways to measure customer loyalty. You can use any of these to determine if your company needs to take steps to earn more loyal customers and turn them into brand advocates.
Net Promoter Score (NPS)
Net Promoter Score is a measurement of how likely a customer is to recommend your product/services to others. Obviously, the customers who are completely satisfied with your product or services will recommend it to others. NPS Survey is a good tool to measure that.
NPS survey uses an 11-point scale of measurement from 0 to 10. In this survey, those who answer with a 9 or 10 are considered “promoters” — loyal and happy customers. Those who answer 7 or 8 are considered “passive” — happy, but less likely to recommend your business. Customers who respond with a 6 or below are known as “detractors” — people who are likely not referring your brand to anyone.
Those who respond below 6 need to be treated well and you should do something to improve their experience and satisfaction level with your brand.
Customer Loyalty Index (CLI)
Another method is using a Customer Loyalty Index to measure customer loyalty. This one is the most used and most popular method.
This index is used to track customer loyalty over time. This method is similar to the NPS. But it also collects other information like the likelihood of repurchasing, upselling, etc.
Unlike the NPS the CLI survey uses a 6-point scale. Here, 1 stands for “Definitely Yes” and 6 standing for “Definitely No.” With this you can find out:
- How likely someone is to recommend your brand.
- How likely someone is to buy from your brand again in the future.
- and, How likely someone is to try out other products and services offered by your brand.
If you take the average score of all your responses based on the following point system you can calculate your Customer Loyalty Index (CLI).
- 1 = 100
- 2 = 80
- 3 = 60
- 4 = 40
- 5 = 20
- 6 = 0
With this survey, you can have a fair idea of how likely a customer is to positively recommend your brand to others. Also, you can understand how likely the customer will buy products or services from you again. Or if the customer will try other products and services from your brand.
If you keep using this survey from time to time you can track the changes in the responses of the customers and take necessary steps to improve customer loyalty by tweaking your customer loyalty strategy.
Customer Lifetime Value (CLV)
Another way to measure customer loyalty through the CLV technique. CLV is customer lifetime value. It means the total revenue a company earns from an average customer. Most of the eCommerce and SaaS companies use this metric to measure their customer loyalty.
A simple formula to measure the CLV is:
(annual revenue per customer × customer relationship in years) – cost of customer acquisition
For example, let’s say an average customer spends $1000 on your products per year. The average customer stays with your brand for 20 years and you spend $500 to acquire a customer. In this case, your CLV formula will be like this:
($1000 × 20) – $500 = $19,500
Simply putting a higher CLV indicates that you have more loyal customers.
With the data of CLV, you can measure the impact of your marketing. If your CLV is lower than the standard CLV in your industry you can focus on creating better customer loyalty programs. The best way is to serve your customers in the best possible way and build better customer relationships. This will help you with increased CLV and increase profitability.
Also, it cuts down your customer acquisition cost. Your happy customers spread good words about your brand and that is the word of mouth marketing.
Repeated Purchase Rate (RPR)
The next technique to measure your customer loyalty is through the Repeated Purchase Rate of your customers. If you track how many of your customers are making a repeated purchase within a year you can monitor the retention rate of your customers. A higher retention rate indicates a higher repeat purchase rate and better customer loyalty.
The easiest way to figure out repeat purchase rate is:
Repeat Purchase Rate = Number of customers who made a repeat purchase over 365 days / Total number of customers over 365 days
With the repeat purchase rate calculation, you can also estimate your sale for the next quarter or year. Also, you can determine how many more customers you need to acquire for meeting your revenue targets.
How to Build Customer Loyalty?
Now you understand how important is customer loyalty for a brand and its growth. You understand how to measure your customer loyalty through the most popular customer loyalty measuring techniques.
If you think you need more loyal customers you need to make few changes in your strategies. Below are five popular strategies for building customer loyalty.
Improve Your Customer Service
Whether you like it or not but customer service plays a great role in building your customer loyalty. Bad customer service not only increases your customer acquisition costs but also badly affects your bottom line. According to a survey companies lose $75 billion every year because of bad customer service and rude staff. Of course, to improve your customer loyalty you need to improve in this area.
According to a survey conducted in 2020 around 71% of consumers spend more money with the brand or company that provides good customer service. It simply means that if you take care of your customers, they will take care of your company.
If you are looking at the big brands in your industry, obviously you cannot match them in terms of the money they spend on marketing. But, that doesn’t mean you can’t create a customer loyalty program in your company. Being a small company has its own advantage.
You have lesser customer and lesser employees, you can create good customer service for your customers. Even in the service-based small companies the owners directly know their customers and so do the customers know the owner. Mostly, in local businesses, the business owners know their customers and directly speak with them.
That’s one advantage of being small: You can provide a level of service no big company can.
If you build a culture of providing good service to your customers among your employees you can create really effective customer loyalty program.
Promote shared values with your ideal customers
The most effective way to create and promote customer loyalty is by promoting shared values.
According to a survey by CEB, the majority of consumers don’t care about having a close relationship with any brand; those who do care more about the things that the brand stands for than how often the brand engages with them.
Brands having a majority of loyal customers have developed their following through sharing common values and issues that the consumers care for the most.
The issue you stand for shouldn’t be a global and big issue but it could be a local issue. For, instance if you offer to build a school for underprivileged children in third-world countries. Your consumers will support you in your cause and they will trust your brand.
Communicating your brand’s higher purpose outside of making money is the way to create a genuine connection with your customers.
Build a Community to Help
User experience is the biggest differentiator and the most deciding factor is the continual interaction of your customer with your brand. By interaction, it doesn’t mean only onboarding your customers.
Big brands having most of the loyal customers like apple have created communities. Customers and prospects both share their thoughts about the brand, share tips, and experiences with the brand.
If you want you can build your own community site or start a community for free on Facebook. Then, give people a reason to join, such as insider access to product drops, special pricing for events, training, etc. But, if you create a community on your own website you can control the groups and also respond to customer questions.
Build Partnerships with Relevant Brands
Experts recommend building strategic partnerships with relevant brands to improve customer loyalty. Building partnerships with relevant brands can help your business in various ways. It not only gives you an opportunity to delight your customers by providing them exclusive experiences but also gives you access to new customer data, new technologies, and additional features to add to your loyalty programs.
With this, you can also increase your revenue.
But the important thing to keep in mind is that the key to a good brand partnership in regard to improving your customer loyalty is to think beyond the obvious partnership.
For instance, if an eCommerce company partners with a transportation company for faster delivery of their products it won’t make much difference.
But, if an eCommerce company partners with a chain of hospitals in the country and offers their customers free medical check-up and sample collection facility from home will make better sense for the customers.
eCommerce company will get access to the patient’s data from the hospital and can sell products from their website that will help those patients get well soon.
Create a Great Loyalty Program
Chances are you are already part of several loyalty programs. You may be gathering miles on your credit card by flying with a particular airline. Or you may be a member of a loyalty program of a grocery store, or online store. These programs give you a reason to buy often from the retailer.
It is not always that you give your customers discounts in your loyalty programs. If you ever wish your customers on their special days like birthdays, anniversaries, and other key moments you certainly will be on top of your customer’s minds when they have to buy something you offer.
Hotels usually do this as they send complimentary food or wine on the stay of their loyal customers on their special days like anniversary or birthdays.
How to Improve Customer Loyalty?
In the age of the internet, consumers have a lot of choices. They are not limited to choose from one or two brands and companies to buy from. They have unlimited choices and several alternatives to choose from for anything they want to buy. The same is true for the services. Consumers can hire from hundreds of service companies and service professionals. So, technically now there is no monopoly in the market and that is good for the consumers.
Simply put if you want to remain the business you have no other choice than to delight your customers. Provide the best products, best service, and best customer support. Make the user experience process better so that your customers stick to your brand and every time they choose your brand over the competition.
With marketing, you can get your name out, but it’s good customer service that will get you, loyal customers.
We have discussed a lot of ways in this post that you can use to improve your customer loyalty programs. You can also take the help of a company like us to design a good and effective loyalty program for your company.
Use the form below to contact us if you need our help to design a custom loyalty program for your company.
Conclusion
You understand that customer loyalty is important for the growth of your brand. With loyal customers, your cost of customer acquisition and marketing significantly comes down. That’s because loyal customers recommend your brand to others. Word of mouth is the best and cheapest form of marketing. But that only happens when your customer is happy with your brand. Hence, you should invest in improving, building, and growing your customer loyalty.
